Farewell to America as a Financial World Power

A major shift in world financial power centers is on the horizon.America is on the decline, while Asia and Europe are on the rise.

by Paul Kieffer
October 30, 2008

On September 25, 2008 Peer Steinbrück
said
America would decline as a financial power.

Just five years ago it would have been hard
to imagine an official representative of the German government
making such statements in a speech outlining his
government's position in Germany's parliament, the
Bundestag. At the end of September German finance minister Peer
Steinbrück sketched his view of the world financial
crisis.

For Steinbrück one thing is absolutely clear: "The
United States is the place of origin and the focal point of the
crisis." Although the long term effects of the crisis are as
yet undetermined, Germany's finance minister prophesied
that America "will lose its status as [the] superpower of the
world's financial systems."

It doesn't take a lot of insight to identify America
as the cause of the turbulence on the world's financial
markets. The third quarter of 2008 – especially the month
of September – will go down as one of the most noteworthy
chapters in the history of the modern financial system. In less
than 30 days the world witnessed several alarming developments
in the United States:

• The U.S.
Department of the Treasury nationalized mortgage lenders Fannie
Mae und Freddie Mac.
• The investment bank Lehman Brothers declared bankruptcy,
making it the largest insolvency in American history with a 600
billion dollar loss. Several German institutions had holding in
Lehman Brothers, including the Postbank, various national
health insurance carriers and even the German national social
security system.
• The investment banks Goldman Sachs und Morgan Stanley
applied to operate as commercial banks to gain access to the
FDIC for securing investor deposits. In so doing, both banks
voluntarily accepted regulation by the Federal Reserve
Bank.
• The U.S. Congress approved an emergency aid package
worth 700 billion dollars.

According to Steinbrück, the financial malaise in the
U.S. has "spread like a poisonous oil spill." The European
Union and several Western countries have adopted their own
emergency measures to cope with the crisis. The Bundestag
passed emergency legislation authorizing the established of an
emergency fund for German banks that is proportionally even
larger than the America's 700 billion dollar plan.

One result of the worldwide financial crisis is already
foreseeable: "The world will not be the same again as it was
before this crisis," was Steinbrück's prediction.
The EU and the Asia are pushing for new regulations to oversee
the world's financial markets. President Bush, though,
wants financial markets to remain free and open, with the
markets "regulating" themselves.

But that is exactly what did not work in the development of
the current crisis, according to former U.S. Federal Reserve
chairman Alan Greenspan's testimony at a Congressional
hearing just days ago. For 40 years Greenspan has championed
unregulated capital markets. "I made a mistake," Greenspan
said, "in presuming that the self-interest of organizations,
specifically banks and (other financial institutions), were
such as that they were best capable of protecting their own
shareholders and their equity in the firms."

Greenspan did not account for human nature's ability
to make use of an opportunity for personal enrichment at the
expense of others. "Love of money" is one of the
characteristics of those perilous times to arise in the last
days, according the apostle Paul (2 Timothy 3:1-2). Even
without the current crisis, though, the U.S. position as the
world's financial leader has been threatened by
America's risky financial policies.

A developing shift in the geopolitical
balance of power

With the turbulence on world financial markets,
"small" investors are understandably concerned
about the safety of their deposits and investments. However,
the current situation is more than just a financial crisis. It
signals an impending irrevocable shift in global power. The age
of America's dominance as the world's financial
superpower is coming to an end.

America's standing in the world community had already
suffered damage because of the Iraq war, but the damage from
the current crisis will be irreversible. Government
intervention in the U.S. economy and the nationalization of
financial institutions defies the principle of free capitalist
markets. America's underpinning economic philosophy is
being shown to be flawed, just as the Soviet system eventually
revealed its inherent weaknesses. The American system operates
on the premise that capital markets will be self-regulating to
everyone's benefit, assuming that human nature under Satan's
influence is good. The result of this false premise – as
the current financial crisis clearly demonstrates – is
a "predatory capitalism" where quick profits are sought using
greed techniques like short-selling, leveraged buy-outs,
speculative hedge funds, etc., that provide no real economic
value.

For years American administrations seemed to be
schoolmasters, lecturing other countries on the virtues of
sound financial planning, budget deficits and related issues.
American influence within the International Monetary Fund was
the reason why countries like Argentina, Indonesia and Thailand
went into recession when their governments were forced to cut
government spending in exchange for funding via the IMF.

However, the United States did not practice what it was
preaching. Tax cuts for American taxpayers and the burden of
expanded military obligations have led to an unprecedented
increase in the federal budget deficit. At the end of September
the U.S. national debt exceed 10 trillion dollars for the first
time in history. If the as yet unfunded future obligations of
America's social security system are factored in, the
national debt actually amounts to some 60 trillion dollars.

In the past, concerns over America's growing national
debt were countered by the argument that the creditors were
largely Americans themselves, who bought U.S. treasury bills.
Today, however, 25 percent of America's annual federal
budget deficit is paid for by foreign purchases of treasury
bills. The percentage has doubled in just the last 20 years and
will continue to increase. Why? The average savings rate of the
American public – the percentage of disposable income set
aside in savings – is at an all-time low and is actually
negative at about 2 percent. That means that the average
American is actually spending more money each year than he has
available to spend. By contrast, the savings rate in Germany
is at a postwar record level at 11.2 percent.

America's emergency aid package will lead to more
deficit spending, which is being financed increasingly by
foreign nations like China. Oddly enough, China has been one of
the countries lectured in the past by Washington on sound
fiscal policy. Today there don't appear to be any Chinese
banks on the verge of bankruptcy.

Will China and other nations that have been major purchases
of U.S. Treasury securities in recent years – countries
like Russia and the petrodollar nations lining the Persian Gulf
– continue to support the dollar as the world's
leading currency? Or will the current crisis be the impetus
that sees a shift away from the dollar? Whatever the answer is,
the United States won't be determining the outcome on its
own. The current financial mess can only be solved via
cooperation among the affected regions of the world.

The national debt trap

The U.S. economy is not about to collapse. It will remain
the world's largest economy for the time being. However,
the demise of former world empires was often tied to the
adverse effects of financing military expenditures, with one
adverse effect being a rise in national debt.

For example, the British Empire began to buckle under the
weight of its colonial obligations in the 19th century, and
expenditures for World War I pushed Britain further down the
road to losing its position as the world's financial
center. One of the reasons for the collapse of the Soviet
system was the failure of its economy, which was strained by
the war in Afghanistan and the attempt to keep up with the U.S.
in the arms race.

It won't be any different for America when it comes to
the impact of military costs and deficit spending. In the five
years since the U.S. invaded Iraq, the national debt has grown
by 500 billion dollars annually. This trend would have
threatened America's position as the world's primary
financial center even without the current crisis.
The publicly held portion of the national debt now
equals about 37 percent of the U.S. Gross Domestic
Product. When that portion of the national debt held by U.S.
governmental agencies is factored in, the percentage rises to
65 percent. That is twice as high as at the end of World War
II, which was the most expensive war in U.S. history. By
contrast, the current ratio of national debt to GDP for China
is only about 19 percent.

If current trends continue and legislated increases in U.S.
entitlement programs and deficit spending for unfunded Social
Security obligations are factored in, then America's
national debt will be well over twice the country's
annual GDP by the year 2040. "Who will want to lend us money
then?" asks financial expert David Walker.

Proverbs 22:7 reveals an interesting principle that this
development will have on America's status as a world
leader: "The rich rule over the poor, and the borrower is
servant to the lender." Most Christians do not realize
that America's greatness as a nation – and her
impending decline – were prophesied in the Bible.
America's real heritage can be traced back to the ancient
nation of Israel, comprised of the twelve tribes of Israel.

One of the blessings promised Israel for its faithfulness to
God was it solid financial standing among the community of
nations: "You shall lend to many nations, but you shall not
borrow. And the Lord will make you the head and not the tail;
you shall be above only, and not be beneath" (Deuteronomy 28:12-13).
Conversely, Israel was prophesied to become a debtor nation if it
chose to disobey God (verse 44).

Bible prophecy indicates a shift in the balance of power
among the world's major regions for the period preceding
Jesus' return. The main focal point of that development
will be the continued decline of the English speaking peoples
that descended from their British homeland, including the
United States. That's the real story behind the current
financial crisis and the impact it will have on the future of
the United States.